Myer On The Radar Of Index Trackers

This story features BOART LONGYEAR GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: BLY

By Chris Shaw

Today Standard and Poor's (S&P), which is the leading provider of equity indices in Australia, has announced some changes to the stocks making up the various Australian indices as part of a re-balancing for the March quarter.

The changes are to take effect from the opening of trading on Monday March 22, which means there is potential for the market to look to factor in the changes in coming trading sessions. Index fund managers in particular are likely to use the next two weeks to sell the 'loser' stocks while buying shares in those companies being added to a particular index. Admittedly, they could have done so in anticipation of today's announcement , but not for the 100% as there was no certainty whatsoever which stocks would lose their index spots, and which ones would replace them.

The S&P announcement shows no changes have been made to the composition of the S&P/ASX 20 Index, while in the S&P/ASX 50 Index Asciano ((AIO)) has been added at the expense of Intoll Group ((ITO)).

In the S&P/ASX 100 there have been two changes, with Boart Longyear ((BLY)) and Myer Holdings ((MYR)) being added and Eldorado Gold ((EAU)) and Singapore Telecommunications ((SGT)) being dropped. In a preview to today's changes, analysts at Morgan Stanley had suspected Spark Infrastructure was a candidate to be removed from the ASX100 Index.

Both Morgan Stanley and JP Morgan had predicted Myer's addition, seeing it as a likely winner from the change given its relatively recent listing meant this was the first time the stock could be considered for index inclusion and its market capitalisation justified such a move.

This in turn means index funds will now need to buy the stock to bring their weightings into line or risk exposing their fund to a level of tracking error to be determined by the weighting Myer is given in the various indices.

Myer has also been added to the S&P/ASX200 Index along with Mineral Resources ((MIN)) and Perseus Mining ((PRU)), the three stocks being dropped to make way being Dominion Mining ((DOM)), Minara Resources ((MRE)) and Viterra ((VTA)).

While the Perseus Mining inclusion was no surprise to Morgan Stanley, the stockbroker had considered Premier Investments ((PMV)) a likely candidate for the ASX200 Index, while it had also considered Sundance Resources ((SDL)) and Australian Agriculture ((AAC)) as possibilities to be dropped from that Index.

In the S&P/ASX300 Index there were a total of 21 additions and 15 deletions, so while the six net additions was in line with the expectations of JP Morgan, the actual number of changes was larger than forecast.

The major change in JPM's view was the addition of recently-listed retailer Kathmandu ((KMD)), which for the same reason as Myer had not been able to be included in an Index until now.

While Myer and Minara were added to the All Australian 200 Index, as expected by JP Morgan, at the expense of Astro Japan Property Group ((AJA)) and STW Communications ((SGN)), which was equally as expected. But Industrea ((IDL)) didn't replace Nexus ((NXS)) as the stockbroker had anticipated.

Share price reaction to the changes has been mixed today with Myer, Asciano and Perseus trading slightly higher while Eldorado is down a little, Dominion and Boart Longyear are steady and Vitarra, SingTel and Minara are all up slightly. (Nickel stocks are in demand these days, regardless of index changes).

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